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Category: Hormel Foods (HRL)
Date: 27 December 2020 Stock price of Hormel Foods (HRL): $47.17 In this article we take a more detailed look at Hormel Foods (HRL) a leading global branded food company with over $9 billion in annual revenues across more than 80 countries worldwide. Its brands include Skippy®, SPAM®, Hormel® Natural Choice®
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The Company is primarily engaged in the production of a variety of meat and food products and the marketing of those products throughout the United States and internationally. Although pork and turkey remain the major raw materials for its products, the Company has emphasized for several years the manufacturing and distribution of branded, value-added consumer items rather than commodity fresh meat products"
More About Hormel Foods
Hormel Foods Corporation, based in Austin, Minn., is a leading global branded food company with over $9 billion in annual revenues across more than 80 countries worldwide. Its brands include Skippy®, SPAM®, Hormel® Natural Choice®, Columbus®, Applegate®, Justin's®, Wholly®, Hormel® Black Label® and more than 30 other beloved brands. The company is a member of the S&P 500 Index and the S&P 500 Dividend Aristocrats. In 2016, the company celebrated its 125th anniversary and announced its new vision for the future – Inspired People. Inspired Food.™ - focusing on its legacy of innovation.
Hormel Foods Corporation, a Delaware corporation (the Company), was founded by George A. Hormel in 1891 in Austin, Minnesota, as Geo. A. Hormel & Company. The Company started as a processor of meat and food products and continues in this line of business. The Company’s name was changed to Hormel Foods Corporation in 1995. The Company is primarily engaged in the production of a variety of meat and food products and the marketing of those products throughout the United States and internationally.
Although pork and turkey remain the major raw materials for its products, the Company has emphasized for several years the manufacturing and distribution of branded, value-added consumer items rather than commodity fresh meat products. The Company has continually expanded its product portfolio through organic growth and acquisitions. Refer to Note B - Acquisitions and Divestitures for information on the Company's recent acquisitions and divestitures. Internationally, the Company markets its products through Hormel Foods International Corporation (HFIC), a wholly owned subsidiary. HFIC has a global presence in the international marketplace through joint ventures and placement of personnel in strategic foreign locations such as Australia, Brazil, Canada, China, Japan, and the Philippines. HFIC has a minority position in a food company in the Philippines (The Purefoods-Hormel Company, Inc., 40% holding). The Company had no significant change in the type of products produced or services rendered, or in the markets or methods of distribution, since the beginning of the 2020 fiscal year. The Company has not been involved in any bankruptcy, receivership or similar proceedings during its history.
Hormel Foods Corporation, a Delaware corporation (the Company), was founded by George A. Hormel in 1891 in Austin, Minnesota, as Geo. A. Hormel & Company. The Company started as a processor of meat and food products and continues in this line of business. The Company’s name was changed to Hormel Foods Corporation in 1995. The Company is primarily engaged in the production of a variety of meat and food products and the marketing of those products throughout the United States and internationally.
Although pork and turkey remain the major raw materials for its products, the Company has emphasized for several years the manufacturing and distribution of branded, value-added consumer items rather than commodity fresh meat products. The Company has continually expanded its product portfolio through organic growth and acquisitions. Refer to Note B - Acquisitions and Divestitures for information on the Company's recent acquisitions and divestitures. Internationally, the Company markets its products through Hormel Foods International Corporation (HFIC), a wholly owned subsidiary. HFIC has a global presence in the international marketplace through joint ventures and placement of personnel in strategic foreign locations such as Australia, Brazil, Canada, China, Japan, and the Philippines. HFIC has a minority position in a food company in the Philippines (The Purefoods-Hormel Company, Inc., 40% holding). The Company had no significant change in the type of products produced or services rendered, or in the markets or methods of distribution, since the beginning of the 2020 fiscal year. The Company has not been involved in any bankruptcy, receivership or similar proceedings during its history.
Segments of Hormel Foods
The Company reports results in the following four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other. At the beginning of fiscal 2019, the Hormel Deli Solutions division combined all deli businesses, including the Jennie-O Turkey Store deli division, into one division within the Refrigerated Foods segment. In addition, the ingredients business was realigned from the Grocery Products segment to the Refrigerated Foods segment.
Products and Distribution of Hormel Foods
The Company develops, processes, and distributes a wide array of food products in a variety of markets. The Company manufactures its products through various processing facilities and trusted co-manufacturers. The Company’s products primarily consist of meat and other food products sold across multiple distribution channels such as U.S. Retail, U.S. Foodservice, U.S. Deli, and International. Total revenues contributed by classes of similar products and sales channels for the last three fiscal years are reported in Note P - Segment Reporting of the Notes to Consolidated Financial Statements. Domestically, the Company sells its products in all 50 states.
The Company’s products are sold through its sales personnel, operating in assigned territories or as dedicated teams serving major customers coordinated from sales offices predominately located in major U.S. cities. The Company also utilizes independent brokers and distributors. Distribution of products to customers is primarily by common carrier. Through HFIC, the Company markets its products in various locations throughout the world. Some of the larger markets include Australia, Brazil, Canada, China, England, Japan, Mexico, Micronesia, the Philippines, Singapore, and South Korea. The distribution of export sales to customers is by common carrier, while the China and Brazil operations own and operate their own delivery systems. The Company, through HFIC, has licensed companies to manufacture various products internationally on a royalty basis, with the primary licensees being Danish Crown UK Ltd. and CJ CheilJedang Corporation.
The Company’s products are sold through its sales personnel, operating in assigned territories or as dedicated teams serving major customers coordinated from sales offices predominately located in major U.S. cities. The Company also utilizes independent brokers and distributors. Distribution of products to customers is primarily by common carrier. Through HFIC, the Company markets its products in various locations throughout the world. Some of the larger markets include Australia, Brazil, Canada, China, England, Japan, Mexico, Micronesia, the Philippines, Singapore, and South Korea. The distribution of export sales to customers is by common carrier, while the China and Brazil operations own and operate their own delivery systems. The Company, through HFIC, has licensed companies to manufacture various products internationally on a royalty basis, with the primary licensees being Danish Crown UK Ltd. and CJ CheilJedang Corporation.
Raw materials of Hormel Foods
The Company has, for the past several years, been concentrating on branded products with year-round demand to minimize the seasonal variation experienced with commodity-type products. Pork continues to be the primary raw material for Company products. The Company’s expanding line of branded products has reduced, but not eliminated, the sensitivity of Company results to raw material supply and price fluctuations. The majority of the hogs harvested for the Company are purchased under supply contracts from producers located principally in Minnesota and Iowa. The cost of hogs and the utilization of the Company’s facilities are affected by both the level and the methods of pork production in the United States. The Company uses supply contracts to ensure a stable supply of raw materials. The Company’s contracts utilize market-based formulas and/or markets of certain hog production inputs to better balance input costs with customer pricing.
All contract costs are fully reflected in the Company’s reported financial statements. In fiscal 2020, the Company purchased 95 percent of its hogs under supply contracts. 3 In fiscal 2020, Jennie-O Turkey Store raised turkeys representing approximately 78 percent of the volume needed to meet its raw material requirements for branded turkey products and whole birds. Turkeys not sourced within the Company are contracted with independent turkey growers. Jennie-O Turkey Store’s turkey-raising farms are located throughout Minnesota and Wisconsin. Production costs in raising hogs and turkeys are subject primarily to fluctuations in grain prices and fuel costs. To manage this risk, the Company uses futures contracts to hedge a portion of its anticipated purchases of grain. The Company purchases other commodity-based raw materials such as beef, pork, and chicken for use across all segments. Raw materials are obtained from various suppliers and manufacturers. The Company has longstanding relationships with its suppliers of raw materials and expects to have an adequate supply for its present needs. Additionally, the cost and supply of avocados and peanuts are impacted by the changing market forces of supply and demand, which can impact the cost of the Company’s products. The Company uses long-term supply contracts and forward buying in an attempt to manage these risks.
All contract costs are fully reflected in the Company’s reported financial statements. In fiscal 2020, the Company purchased 95 percent of its hogs under supply contracts. 3 In fiscal 2020, Jennie-O Turkey Store raised turkeys representing approximately 78 percent of the volume needed to meet its raw material requirements for branded turkey products and whole birds. Turkeys not sourced within the Company are contracted with independent turkey growers. Jennie-O Turkey Store’s turkey-raising farms are located throughout Minnesota and Wisconsin. Production costs in raising hogs and turkeys are subject primarily to fluctuations in grain prices and fuel costs. To manage this risk, the Company uses futures contracts to hedge a portion of its anticipated purchases of grain. The Company purchases other commodity-based raw materials such as beef, pork, and chicken for use across all segments. Raw materials are obtained from various suppliers and manufacturers. The Company has longstanding relationships with its suppliers of raw materials and expects to have an adequate supply for its present needs. Additionally, the cost and supply of avocados and peanuts are impacted by the changing market forces of supply and demand, which can impact the cost of the Company’s products. The Company uses long-term supply contracts and forward buying in an attempt to manage these risks.
Human Capital of Hormel Foods
Employees are the cornerstone of the Company and its purpose: Inspired People. Inspired Food™. As of October 25, 2020, the Company had approximately 19,100 active domestic and foreign employees. The Company is committed to supporting employees' professional development as well as providing competitive benefits and a safe, inclusive workplace. Employee safety remains the Company's top priority. The Company develops and administers company-wide policies to ensure the safety of each team member and compliance with Occupational Safety and Health Administration (OSHA) standards. This includes monthly safety training and assessments as well as annual safety audits. The Company believes a diverse workforce fosters innovation and cultivates an environment filled with unique perspectives.
As a result, diversity and inclusion help the Company meet the needs of customers and consumers around the world. Respect for human rights is fundamental to the Company's business and its commitment to ethical business conduct. The Company measures employee engagement on an ongoing basis as it believes an engaged workforce leads to a more innovative, productive and profitable company. The results from engagement surveys are used to implement programs and processes designed to keep employees connected with the Company.
As a result, diversity and inclusion help the Company meet the needs of customers and consumers around the world. Respect for human rights is fundamental to the Company's business and its commitment to ethical business conduct. The Company measures employee engagement on an ongoing basis as it believes an engaged workforce leads to a more innovative, productive and profitable company. The results from engagement surveys are used to implement programs and processes designed to keep employees connected with the Company.
Customers of Hormel Foods
During fiscal 2020, sales to Walmart Inc. (Walmart) represented approximately 14.6 percent of the Company’s revenues (measured as gross sales less returns and allowances), compared to 13.5 percent in fiscal 2019. Walmart is a customer for all four segments of the Company. The five largest customers in each segment make up approximately the following percentage of segment sales: 44 percent of Grocery Products, 35 percent of Refrigerated Foods, 54 percent of Jennie-O Turkey Store, and 15 percent of International & Other. The loss of one or more of the top customers in any of these segments could have a material adverse effect on the results of such segment.
Competition of Hormel Foods
The production and sale of meat and food products in the United States and internationally is highly competitive. The Company competes with manufacturers of pork and turkey products as well as national and regional producers of other meat and protein sources, such as beef, chicken, fish, peanut butter, whey, and plant-based proteins. All segments compete on the basis of price, product quality and attributes, brand identification, breadth of product line, and customer service. Through effective marketing and strong quality assurance programs, the Company’s strategy is to provide high quality products that possess strong brand recognition, which support higher value perceptions with customers
Trademarks and patents of Hormel Foods
There are numerous patents and trademarks important to the Company’s business. The Company holds 34 U.S. and six foreign patents. Most of the trademarks the Company uses are registered in the U.S. and other countries. Some of the more significant owned or licensed trademarks used by the Company or its affiliates are: HORMEL, ALWAYS TENDER, APPLEGATE, AUSTIN BLUES, BACON 1, BLACK LABEL, BREAD READY, BURKE, CAFÉ H, CERATTI, CHI-CHI’S, COLUMBUS, COMPLEATS, CURE 81, DAN’S PRIZE, DI LUSSO, DINTY MOORE, DON MIGUEL, DOÑA MARIA, EMBASA, FAST ‘N EASY, FIRE BRAISED, FONTANINI, HAPPY LITTLE PLANTS, HERDEZ, HORMEL GATHERINGS, HORMEL VITAL CUISINE, HOUSE OF TSANG, JENNIE-O, JUSTIN’S, LA VICTORIA, LAYOUT, LLOYD’S, MARY KITCHEN, NATURAL CHOICE, OLD SMOKEHOUSE, OVEN READY, PILLOW PACK, ROSA GRANDE, SADLER'S, SKIPPY, SPAM, SPECIAL RECIPE, THICK & EASY, VALLEY FRESH, and WHOLLY. The Company’s patents expire after a term that is typically 20 years from the date of filing, with earlier expiration possible based on the Company’s decision to pay required maintenance fees. As long as the Company continues to use its trademarks, they are renewed indefinitely.
Hormel (HRL) stock price history over the last 5 years
The image below shows the stock price history of Hormel Foods (HRL). Over the last 5 years the stock of Hormel Foods (HRL) has increased by 24.8%. While its not exactly shooting the lights out, it is a positive return which investors should be happy about.